Clarification on Actual user 9AU ) condition of Advance Authorisation

[Guest]

Dear Sir,

Request to please guide me on the following point of FTP 2015-2020

This point is in view of Para 4.16 (ii) of FTP and Notification No. 31 Dtd. 01 August 2013

1. I have manufactured my export product using duty paid input ( raw material ) and taken a CENVAT facility (credit) of the same.

2. Thereafter, I have imported duty free input against Advance Authorisation.

My doubt is :-

Can I use the input imported duty free against Advance Authorisation to manufacture “dutiable goods” in my same factory ( as stated in Para 4.16 (ii) of FTP ) and sell the same in domestic market ?

Because on one hand, DGFT vide Notification No. 31 Dtd. 01 August 2013 and Policy Circular No. 03 Dtd. 02 August 2013 state that “input actually used in manufacturing of the export product should only be imported under the Advance Authorisation. Similarly, inputs actually imported MUST be used in the export product”.

In other words, inputs actually used in manufacture of the export product should ONLY be imported under Advance Authorisation AND inputs actually imported must be used in the EXPOT Product. DGFT has not used the word “dutiable goods ” instead of “Export product” in this Notification.

(Please also refer to Para 4.12 ( i ) of FTP which state the same logic. )

On the other hand, Para 4.16 ( ii ) of FTP state that “in case where CENVAT credit facility on input have been availed for the exported goods, goods imported against Advance Authorisation shall be utilized only in the manufacture of DUTIABLE GOODS (and not necessarily export products) in same factory or outside ” My “dutiable goods” can be goods which I sell in the domestic market.

Is it not a contradictory provision?

Request to advise / guide in the matter.

Thanks and Best Regards

[CSSANJAY MALHOTRA]

Dear Mr Atul,

You can use Imported material for manufacture of goods and clearance in domestic market subject to payment of Import duty along with interest and afterwards produce the evidence of same to your DGFT office for Advance Authorisation closure.

[Guest]

Thanks a lot Mr. Sanjay Malhotra ji for your guidance.

However, what about the provision under Para 4.16 ( ii ) of FTP ? It states "Dutiable goods" and not exported goods.

Request to please elaborate your interpretation of Para 4.16 ( ii ) of FTP.

Thanks again.

Regards,

Atul Deshmukh

[CSSANJAY MALHOTRA]

Dear Mr. Atul,

Exporters sometimes procures Input from domestic sources on payment of duty, avails CENVAT Credit thereon and use in the manufacture and export of goods against Advance Authorisation. After the EO is completed, Importer can import the Input against the AA subject to the condition that such Input shall be used for the manufacture of Dutiable i.e. Excisable goods and not Exempted Goods.

Reasons behind utilisation in the manufacture of Dutiable Goods is that the Exporter has already availed CENVAT Credit on Inputs used in the Exported material cleared under AA and Excise Law provides for admissibility of CENVAT only if the final product is excisable.

Hope above addresses your concern.

[Guest]

Thank you Mr. Sanjay ji for your feedback. I am now clear on this issue.

[Suryanarayana Sathineni]

Dear Atul Ji,

The following are my views:

1. An exporter can use the duty paid materials for manufacture of export product under Advance Authorization Scheme

before effecting duty free import of the materials under the Authorization and can avail Cenvat credit

2. Subsequent materials imported under the Authorization as remission should be used only in the Export product to

comply with the actual user condition till the export obligation is fulfilled.

3. After that, as per the Notification, the exporter should use such duty free material in the factory of manufacture of

export product which means that the exporter can use such materials in any of the products/similar product meant

for either export or for Domestic market but should not be transferred or sold . In case somebody wanted to sell ,

they have to pay the duties not paid at the time of import.

Hope this clarifies your query.

Best regards

Suryanarayana

[Guest]

Dear Mr. Suryanarayana ji,

I thank you for your feedback / views on the issue.

I request you to express your views on Para 4.16 ( ii ) of FTP, which state that “in case where CENVAT credit facility on input have been availed for the exported goods, goods imported against Advance Authorisation shall be utilized only in the manufacture of DUTIABLE GOODS (not necessarily export products ? ) in same factory or outside ”

My “dutiable goods” can be goods which I sell in the domestic market.

In view of the above Para, I can interpret as below :

1. I use duty paid material to manufacture my export goods.

2. I export such goods.

3. Thereafter, I import duty free material to replenish my raw material stock.

4. I can use this duty free material to manufacture dutiable goods and can sell in domestic market.

Please ratify / clarify.

Thanks in advance.

Atul

[Suryanarayana Sathineni]

Dear Sir

As per the said Para, there is a specific condition on utilizing the replenished material even after completion of export obligation in a situation where the exporter avails cue vat on the inputs used in the export product on its utilisation only in dutiable products either in his factory or in a supporting manufacturer's factory but cannot use as stated in the previous Para. I feel this is a new provision which was not there earlier.

According to me this restriction is to keep the situation in line with rule 6 of cenvat credit rules,2004 according to which,the manufacturer of exempted products not eligible for cenvat credit of duty paid on the inputs used in the exempted products

Hope this clarifies your doubt

Regards

Suryanarayana

[Guest]

Dear Mr. Surya Narayana ji,

Firstly, I thank you for your feedback.

However, I request to clarify whether I can use the duty free material imported against Advance Authorisation (after E.O. fulfilment) , to manufacture dutiable goods and can sell in domestic market.

Thanks in advance again.

Regds,

Atul

AI Summary

Advance Authorisation actual user rule: duty-free imports may be used for dutiable goods but domestic sale requires duty payment. Advance Authorisation duty-free inputs must be used in exported products while the export obligation remains. Where CENVAT was availed on inputs used in export manufacture, replenishment imports under Advance Authorisation may be utilized only in the manufacture of dutiable (excisable) goods; if such goods are cleared for the domestic market the importer must pay the applicable import duty with interest and produce evidence to the DGFT to close the authorisation.